The Math of 3rd Party Royalty Rates

Anyone who talks to me often has probably noticed that I have a thing about 3rd party ebook distributors.  Understanding what they mean as far as sales and royalties is so important for an epubbed author, but figuring out the math can be headache inducing.  Net vs gross, net received vs cover price, knowing their cut, the publishers cut, your cut, whether or not discounts matter–it’s a mess.

The last time I talked about 3rd Party Royalty Rates I concentrated on why they’re important.  The post ended up spawning a lot of interesting discussion, and a lot of different points of view.  My personal opinion is that 3rd party sites are vital as ebooks become more mainstream. A niche market can expect readers to be willing to go from publisher to publisher, memorizing a dozen different logins on websites that, let’s face it, aren’t always very user friendly.

The huge spike in ereader sales means more and more people are viewing ebooks as no different than their paperback counterparts–that’s good for volume of sales, but it can change consumer expectations.  A paperback reader probably expects the ability to buy books from various publishers in one location.  They may be uninterested in purchasing ebooks a different way, which makes visibility on popular ebook distributors vital.

I want to be on as many 3rd party sites as possible, but I also want to get a good royalty rate.  That’s one of the reasons I spend a lot of time running numbers.  I may not always be able to make the best choice, but I’d like to make an educated one, regardless.

First, the Disclaimers!

There is no insider knowledge here.  I am not a publisher, or employed by one.  I can’t give anyone any awesome secrets here, but I can provide information I’ve spent a lot of time gathering up from various places on the internet and wrestling to put into a meaningful format.

I say it a few times throughout the post, but I’ll say it again up front: all of my math is based purely on numbers available to the public on vendor websites.  Publishers negotiate their own contracts, and I’m never going to know for sure what’s in them.  However, since many of these are listed as standard contracts, I think it’s safe enough to use that as a helpful starting point.  We can hope that most publisher negotiations have only made the terms better, not worse!

I do not claim to be an expert.  Just obsessed.  If I weren’t, I wouldn’t have spent this many hours doing math and making charts!  (Also, I welcome being corrected and will update my post if mistakes are found.  I want this to be good information more than I, personally, want to be right.  So if something looks fishy, please let me know!)

Net vs Gross

There are two basic ways ebook authors tend to be paid.  Gross or net, which usually means a percentage of the cover price or a percentage of how much the publisher receives for the sale.  A lot of this depends on how your contract is worded–which is why it is so, so important to make sure you understand it.  For the purpose of my examples, I’m going to assume that “net” means the money the publisher receives from the vendor, without any other publisher-side fees or additional administrative fees taken out.

For obvious reasons, this is all much easier if your publisher pays you based on your cover price, regardless of where your book sells.  However, while a cover price is easier to understand, there’s no way to be sure that it’s really a better deal unless you know what you’re likely to earn on the net.

Figuring Out Your Cut of the “Net”

While it’s generally not possible to know the exact contract a publisher has with a vendor, there are some who list standard terms on their websites, if you’re willing to hunt a little.  For example, All Romance Ebooks says, Best of all, publishers will earn 60% of the retail price on each and every eBook sale. Fictionwise lists a standard contract on their website as well, with the following terms: Publisher royalty is fifty percent (50%) of the Sale Price or twenty-five percent (25%) of the List Price, whichever is greater. (This is a complicated one and will get its own section, because Fictionwise makes authors cry.)

It is my understanding that Amazon has a standard 50% cut as well, but just to give a nice round picture, I figured out some percentages below.  These are a lot of numbers in a short space, so to understand what’s going on, let me give you a little breakdown:

Your Rate: The first line is the 3rd party royalty rate.  If your contract says you get 30% of net receipts on 3rd party sales, then the column you want to look at is the 30% column.  If you split the net receipts 50/50 with your publisher, look at the 50% column.  I broke it down into 30-50% to hopefully cover a broad range.

The Publisher Rate: The first column is the rate your publisher gets.  If they get 60% (like at All Romance Ebooks) look at the bottom row.  50% (Amazon & Fictionwise, to my best knowledge) look at the middle row.

The Percentages In the Chart: These are the percentage of your cover price that you’re actually getting. If your book sells at All Romance Ebooks and your publisher gets 60% of the cover price and you get 50% of what your publisher gets, you get 30% of the cover price.

Displayed as an image for clarity, though a text-only version is available here.

In a perfect world, that would mean you could usually expect a royalty rate between 15-30% of the cover price of any of your books.  How nice it would be if we lived in this perfect world!  Unfortunately, there’s one thing that brings joy to readers everywhere and fear to the heart of epublished authors: Fictionwise Sales.

The Funny Math of Fictionwise

Fictionwise has a lot of sales.  When books first hit the site they’re usually 15-20% off for a week or two.  If it rains, or is sunny out, or the day ends in Y, or for pretty much any other reason that strikes their fancy, Fictionwise will have a sale to celebrate.  This is awesome for readers (and I’m not even going to pretend I don’t take advantage of the sales–I’m not rich, and a fictionwise sale is a great time to try out new authors!)  It can be awesome for authors, as well, because as I just stated–you may get a few purchases from people willing to take a risk on a 30% or 40% off book.

However, if you’re paid on the net on 3rd party sales, this is when life starts to get a little uncomfortable.  Remember the basic terms I listed before?  Publisher royalty is fifty percent (50%) of the Sale Price or twenty-five percent (25%) of the List Price, whichever is greater. If you’re very lucky, you might write for a publisher large enough to have wrangled a more friendly deal out of Fictionwise.  If not, this is when being paid on the cover price becomes vital.

Again, since this is a complicated chart, here is the breakdown:

Your Rate: The first line is the 3rd party royalty rate.  If your contract says you get 30% of net receipts on 3rd party sales, then the column you want to look at is the 30% column.  If you split the net receipts 50/50 with your publisher, look at the 50% column.  I broke it down into 30-50% to hopefully cover a broad range.

The Sale Rate: The first column is the discount being offered. No Sale means a Fictionwise sale at full price.  50% off means the book is discounted 50% when it’s sold.

The Percentages In the Chart: These are the percentage of your cover price that you’re actually getting.  If your book sells for 50% off at Fictionwise and you get 50% of what your publisher gets, which is 50% of 50% of the cover price, you get 12.5%.  (Wow, that was a lot of 50%s.  This is why charts are good.)

Displayed as an image for clarity, though a text-only version is available here.

As you can see, even a generous 50/50 split of the money received from Fictionwise can look pretty lean when they’re having a sale.  50% of 50% of 50% of your cover price is 12.5%, which is not an incredibly robust rate for an epublished book.  A less friendly royalty rate of 35% of the net yields you only 8.75% when a book is half off at Fictionwise.  Compared to a publisher that offers you 30% on the cover price (I have one epublisher that does) it becomes clear how quickly money dwindles.  That’s less than 1/3 as much!

(I’m not doing any money breakdown examples here because I did plenty of them in my original post on 3rd party royalties.  If you’d like to see how big the difference is between 30% cover and 35% net, I did some example math there.)

What Does It All Mean?

Nothing, without context.  Sadly, context is the hardest part of all.  I could give you anecdotal data for where the bulk of my sales occur, but it’s nothing but my personal experience, and to be honest it varies wildly from publisher to publisher.  Our shorter, hotter books sell pretty well on All Romance Ebooks, but very few people buy our Samhain titles there.  Our Samhain books, on the other hand, are starting to move pretty well on Amazon, but our Loose Id ebooks are still flagging.  What does that mean?  Nothing, because I have enough friends who share numbers to know they have the opposite experiences.

I do know that I’m no longer incredibly comfortable with signing epublishing contracts where I’m paid on the net.  It’s harder to keep track of, harder to understand and harder to enjoy any sort of transparency.  However, under some circumstances I’ll consider it, if the rate is 50% of the net receipts.  I’m comfortable with that because I did the math and know roughly where the bottom line is.

With the digital marketplace exploding, it’s safe to assume that all epublished authors need to consider their 3rd party royalty rates very closely in the future, because they could be making a lot of sales through those venues.  Everyone has to decide where their own bottom line is, obviously.  Hopefully my cheerful charts can at least help a few people see those lines a little more clearly.

Got an anecdote?

Anecdotes may not be statistically valid, but they can be interesting.  If you’ve got experiences that differ from mine, I’d love to hear them, whether in the comments or by e-mail.  I do not get tired of talking about this stuff.  Ever.  Just ask Donna, she really wishes I’d stop!  Questions are welcome too, or discussion, or pretty much anything else.  Especially cookies.  Math makes me hungry.